Wallace (Wally) Forbes, CFA, was President of the Forbes Investors Advisory Institute (FIAI) from 1993 through 2014, the division of Forbes Media that publishes the Forbes Special Situation Survey, Forbes Investor and is responsible for the Forbes participation in the Forbes/CFA Institute Investment Course published by Wiley. He hosts an interview program with leading money managers that appears on the Investing section. Mr. Forbes, the youngest son of B. C. Forbes, founder of Forbes Magazine, served as Vice President and Director of Forbes, and President of Forbes Investors Advisory Institute, from 1964 to 1969. After leaving the company, he served as president and CEO of Standard Research Consultants, formerly a subsidiary of Standard and Poor’s Corporation. He subsequently was a founder and partner-in-charge of Benchmark Valuation Consultants, which merged with KPMG Peat Marwick in 1987. Both firms specialized in the business valuation field. He has also served as a director of both public and private companies and of educational and other non-profit organizations. He rejoined Forbes in 1996, once again as President of FIAI. He has authored or co-authored articles on the valuation of business enterprises and related subjects that have appeared in various business and professional publications, including Harvard Business Review, Business Horizons, Monthly Digest of Tax Articles, Management World, Family Advocate, YPO Enterprise, Chief Executive, and The Business Valuation Handbook. After graduating in 1949 from Princeton University with a degree in civil engineering, he served for five years in the U.S. Navy Civil Engineer Corps and was assigned to Seabee battalions (Navy construction battalions) in various overseas locations. After leaving the Navy, Mr. Forbes attended the Harvard Business School, and, upon graduation, was appointed a research associate in investment management and a member of the faculty. Mr. Forbes is a member of the New York Society of Security Analysts and holds the Chartered Financial Analyst designation.

Dividend Aristocrats: Companies That Share The Wealth

Robert Stovall: In my “Dividend Aristocrats” of thirty stocks, the average dividend return is about 3.3%. The stocks vary as to industry, but I don’t recommend tobacco stocks for anybody. I have seen how destructive the use and abuse of tobacco can be in my own family. We don’t get into that. Those provide the highest yields and are probably the most reliable earners, because people who use tobacco are addicted to it, otherwise they wouldn’t buy it.

But aside from that, we have a nice varied list. To make the “Dividend Aristocrats” list, the managements have to have an attitude of sharing in their prosperity and success with shareholders by paying a consistently rising dividend and communicating clearly with them as to why they do these things. This list is not too glamorous but it’s consistent — particularly in a time of general confusion. Free cash flows are consistently substantial and balance sheets sturdy.

Wallace Forbes: Would you say this is a time of confusion?

Stovall: I think it’s a time of confusion. Not only that, but the confusion is contagious — managers and countries getting into trouble are the big concerns currently. I’m not going to rattle off a litany of all the problems we have. But take the small country of Greece as an example. It has only 11 million people and it’s not a major exporter, but it has a lot of tourist attractions in it and that’s their main source of foreign currency.

Greece is worrisome. You wonder how many money funds that are held in this country, for example, held Greek bonds. I don’t know. It’s quite an odd period when it comes to global problems. But despite a whole list of other things that have gone wrong – the Japanese earthquakes, bad weather across the agricultural parts of this country and elsewhere, too much drought here and too much rain there. Yet we have a number of companies that are showing rising earnings and rising dividends.

I have some examples of companies that we like and recommend to our clients that have a record of raising their dividends consistently for 20 years or more.

The main reason for buying one of these stocks we’re recommending, or thinking about owning one, is safety of the dividend and stability of earning power. And we’d like them to be members of an industry that is likely to maintain its relative status within the whole economic firmament.

Let’s start off with consumer staples – these are things that you tend to use whether or not you’re working full-time or retired or don’t care about working at all. One is Unilever. Unilever sells at about $32, and it has a dividend return of roughly 3.7%. It’s raised the dividend consistently over many years. It’s sort of a global version of the U.S.’s Proctor & Gamble.

Another one in the consumer staple area would be General Mills, which has a yield of 3%.

I have another one that’s rather new – hasn’t been around as long as some of the others that are listed on the New York Stock Exchange. It’s Sea Drill, an energy company that makes drilling rigs for offshore use. It’s a bit different in that it hasn’t been around long enough to have a 25 year dividend increase record, but I think it has a little sizzle that makes it tempting.

The management has announced they’re going to raise the dividends to three dollars a share. The stock now sells at $34, so the projected yield is 8.8%.

Forbes: Holy mackerel!

Stovall: So that’s one energy stock. Moving on to another one, you’ve got Conoco-Phillips, which has a dividend return of 3.5%.

Now I don’t have any banks in this group. I think they’re too volatile right now and too vulnerable to changes in regulations. But most strategists would look for a financial stock or other to put into this. If I were going to go with a financial stock, I’d go with BlackRock. That has a dividend yield of 2.9% and has all the former Merrill Lynch money management operations in it.

There are a number of health care companies that fit the category, as well. One would be Abbott Laboratories, which has a dividend return of 3.7%. Abbott Labs is a major health care company that has been around for generations.

Moving down the line to industrials, an interesting one is good old IBM. IBM tends to raise the dividend every year. Of course, when you raise your dividend every year such companies don’t raise it substantially. They’ll raise it a penny or two per quarter and keep that record going. IBM is the leader in information technology; it has adroitly shifted its emphasis from hardware to software. And it has raised the dividend every year for a generation. It’s now yielding only 1.8%, but investors expect them to raise their dividend regularly, which they probably will. I also think that at the recent price it is a stock split candidate. That doesn’t mean anything but some people think it’s exciting.

And I like another old war horse, DuPont. It has a yield of 3.2% and raises the dividend regularly – it’s a dividend performer.

Finally, I have one utility.

Forbes: Go for it.

Stovall: It’s the good old Southern Company with a yield of 4.8%. And it has a compound annual growth rate of 4%, but it keeps on slugging along as a very large utility company in the southern U.S.

Forbes: That sounds like quite a portfolio that you get paid for holding.

Stovall: That’s right. They’re all earning money, all paying dividends and all have raised dividends annually for many years. That’s the story.

Forbes: Well, that is a terrific story as always, Bob. Thank you, sir.

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